Imagine playing a complicated game of chess. Each player carefully plans their moves and anticipates the actions of his opponent. Imagine a game of chess where each player strategically maneuvers their pieces, planning moves in advance and predicting the opponent’s actions. Wouldn’t this tip the scales to the player with the ‘insider knowledge’? Insider trading is not only unethical, but it is also illegal.
On June 29, 20,23, the Securities and Exchange Commission filed charges of insider dealing against Bruce Garelick. He was a former director at Digital World Acquisition Corporation. What was it that got them into trouble?
Insider Trading Plot Alleged
In the worlds of finance and investment, information is just as precious as money. gold. Garelick and Rocket One Capital LLC along with Gerald Shvartsman seem to have found a goldmine. The charges filed by the SEC suggest that these individuals traded DWAC securities in advance of the company’s October 2021 announcement that it had reached an agreement to acquire Trump Media & Technology Group Corp. (TMTG).
But how did these people get such privileged information about you? According to the SEC complaint, a series of events unfolded in a manner similar to a Hollywood film. Garelick allegedly discovered material nonpublic information and updates about the negotiations between DWAC & TMTG after being appointed as a director of DWAC in September 2021. Here’s where the plot thickens.
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The Chain of Information
Garelick was employed at Rocket One Capital as chief strategy officer. He allegedly gave this information to Michael Shvartsman, his boss. Michael Shvartsman then passed this information to his brother Gerald Shvartsman in a twist that resembled a family drama. Using this material nonpublic knowledge, both allegedly purchased DWAC shares on the open markets.
The defendants immediately sold their positions when DWAC announced the merger with TMTG. They collectively made an illicit profit in excess of $22.9 millions. But the story is not over.
The aftermath
- According to the SEC complaint, Garelick did not file SEC Forms 5 and 4 related to transactions he made in DWAC shares, despite his position as a director of DWAC with certain reporting requirements.
- The complaint filed before the United States District Court for the Southern District of New York charges the defendants of violating the antifraud provision of Section 17(a),(2) of the Securities Act of 1932, Section 10(b), of the Securities and Exchange Act of 1935, and Rule 10b-5 (b) thereof.
- Garelick was also charged with violating Section 16a-3 of the Exchange Act, which outlines the reporting requirements.
- The SEC has filed a civil penalty action against all defendants, seeking permanent injunctive measures, disgorgement, pre-judgment interest and civil penalties.
- Garelick, Michael Shvartsman are also facing officer and director barrings by the SEC.
It was a collaborative effort between the SEC and its New York Regional Office, as several members from the Market Abuse Unit worked on the case. The SEC thanked the U.S. Attorney’s Office of the Southern District of New York as well the Federal Bureau of Investigation and the Financial Industry Regulatory Authority for their assistance.
This saga serves as a reminder that transparency and integrity are important in the financial world. The board should not be visible to both players in a fair chess game.
